Important Additions in a Severance Package

The purpose of a severance package is to make a terminated employee “whole” over a reasonable period of time. Very commonly, severance packages include only base salary, neglecting other elements of compensation – such as benefits, RRSP or pension contributions, bonuses, commissions, and so forth. If a severance package excludes any of these elements, the employee ought to speak with an employment lawyer.

Sometimes, the missing elements of severance packages are subtle. For example, many benefit schemes include more than just health and dental coverage – they also often include life insurance, long-term disability coverage, critical illness, a health spending account, and the like. Each of these items has a dollar value – whether it’s the company’s cost or the replacement cost. Where the severance package offers health and dental continuation and nothing further, the extra cost of these missing items needs to be accounted for in some other way in order to make you “whole”.

Bonuses are also a major bone of contention in severance package negotiations. The Ontario courts have been very clear recently that bonuses which would have been earned during the severance period must be included in a severance arrangement, unless the company has communicated very clear language to the contrary through its bonus plans and/or employment contracts. Employees ought to remember that in severance negotiations there are often two different bonus issues: 1) the bonus earned during the year of the termination; and 2) the bonus which would have been earned if not for the termination. Both these elements are up for negotiation.

Finally, it is very common to negotiate non-monetary items into a severance package, such as a reference letter, employment transition counselling, and reeducation allowances. Although companies generally do not have to offer these items, some companies include them anyway, if they feel it could provide value to the departing employee.